Austin Rental Market – September 2006 Update

Below are the stats for the Austin Rental Market for September 2006 and for 2006 year-to-date.

We are now in the slower rental season in Austin. From September through around March is not the ideal time to rent a home in Austin. It’s not a disaster to have a vacancy during this time frame, but the last time I ran stats for it (about a year ago), a typical home in Austin rents for about $50/mo less and takes an average of 10 days longer to rent in the fall/winter than it does in the spring/summer. You can see the fall-off in averages by looking at the August to September comparison below, as school has started and families and students have already settled in by August. (Renters – you can get better deals this time of year, but you have fewer homes to choose from)

As a landlord in Austin, it’s always best to keep your leases ending in the summer cycle if possible, with move-in date after and before school starts. This isn’t always easy to do. We just rented a home with a 12 month lease because that’s what the tenants really needed. In that case, the renewal would be the time to reset the turnover cycle if they decide to renew after 12 months. Another one we just rented we were able to lease it through June 2008, thus giving the owner a longer occupancy and setting the lease ending date back to a summer cycle. A rent increase was written in at the 12 month point.

The other option when you have vacant rent properties during this time of year is to do a shorter 6 to 9 month lease, but that can result in more than one turnover in a 12 month period, which isn’t good either.

OK, to the stats below. There is virtually no change from September 2005, although it looks like homes are renting a bit faster than this time last year. I sound like a broken record, but the story is the same – we have so much new inventory being supplied by investors that it’s making it hard for rental rates to move up. When investment activity slows down, and supply diminishes relative to demand, rental rates will be able to increase. Homes in Austin still rent for less today, on average, than they they did in 1999.

Below is the year-to-date stats for the Austin Rental Market. We are just slightly ahead of last years’ pace, which means we might be at the bottoming out point in this 5 year downward slide in rental rates, but we still have three slow months ahead and a lot of inventory on the market. As of this morning (Oct 7, 2006), there are 1470 single family homes listed for rent in the Austin MLS. We can expect 600 to 700 of those to lease by next month. That’s a lot of unrented homes to roll into next month’s inventory.

Below are year-to-date Austin leasing stats broken down by MLS area. This month I also added a new column – Average year Built. It’s interesting to note that, with a couple of exceptions (Dripping Springs (Area HD) and near Lake Travis (Area RN)), the homes in newer areas have average rent rates and per square foot rent rates below the overall averages for Austin. These homes are cheaper though, so the question then becomes – was the purchase price significantly lower that it still makes sense to invest in these areas?

I’ll have to run an analysis on gross rent multiplier to find out about that, which I may do soon. But since none of these homes provide positive cash flow, appreciation potential is still what we focus on most when advising investment buyers. Would you rather have break-even cashflow in an area with little or no appreciation, or a -$500 cash flow on a home appreciating at +$1500 per month?

Comments and Questions are welcome.
Steve